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    When Your Equipment Breaks Down

    Insurance could help mitigate losses.

    By Jeffrey Watt, The Hartford Steam Boiler Inspection and Insurance Co.

    Would $60,000 in spoiled food and lost business put a major dent in your store's profits? For most convenience store owners, the answer is clearly yes. It happened at one store when compressors on multiple refrigerator and freezer display cases broke down. It took weeks to find replacement parts and make repairs.

    By that time, the store saw $41,500 in lost business income, in addition to more than $18,000 in equipment damage. Like many convenience stores, the location had no backup equipment and little additional cold storage space. The owner did have equipment breakdown insurance, which paid $60,000 for the loss.

    For convenience stores to protect their business, they need to protect the equipment. An important part of that protection is equipment breakdown insurance. The heart of your businesses -- the equipment, machinery and systems that power the store -- is vulnerable to mechanical breakdown, electrical arcing, power surges, centrifugal force and other risks.

    You should make sure your business has equipment breakdown insurance coverage that would speed recovery and minimize losses.

    A common misconception is that property insurance will cover the breakdown of convenience store equipment. In fact, most policies don't cover equipment breakdowns. A specialized coverage, equipment breakdown insurance, can pay for equipment damage, lost income and other expenses resulting from a breakdown. It's designed to cover the unique causes of equipment breakdown, including mechanical accidents, short circuits, electrical arcing, motor burnout and operator error, which accounts for roughly 35 percent of all breakdowns.

    What Should Your Policy Cover?
    What should a comprehensive equipment breakdown policy cover? It should encompass a store's major systems and equipment, including:

    -- Refrigeration equipment: Refrigeration is the mainstay of any convenience store. Typically, it has no temperature alarms, no standby equipment, no excess equipment and no standby storage space. If it fails, the losses can be overwhelming. In one case, the Freon line of a central compressor broke as a result of vibrations, causing the compressor to fail. The result: $24,120 worth of spoiled ice cream.

    -- Air conditioning: These systems contain a variety of expensive parts. A compressor alone can cost thousands of dollars to replace. When compressor rods broke in one store, the total loss was $43,000, including $29,000 for equipment repair and an additional $14,000 for rental equipment to keep the business open.

    -- Security systems: These systems are vulnerable to power surges and other electrical fluctuations. Since every store depends heavily on its security and surveillance systems, they must be maintained and restored quickly when they go down.

    -- Electrical systems: With their myriad interconnected parts -- panels, transformers, and switchgear -- electrical systems are vulnerable to wide-ranging breakdowns. All it takes is a loose connection, moisture, or even a little dust or dirt, and the whole system is at risk.

    -- Electronic retail equipment: Electronic cash registers, bar-code readers, computerized inventory software, automatic credit card and credit-checking devices can be damaged by power surges, electrical problems and other disruptions. When a power surge came through one store's data lines (only the electrical and communications lines had surge suppressors), the total loss exceeded $30,000.

    -- Boilers: Many stores use a boiler for heat or hot water. It's critical to get boilers up and running as quickly as possible. Most jurisdictions require periodic inspections of boilers and pressure vessels. Your equipment breakdown insurance policy should include jurisdictional inspections when required by law.

    What Costs are Covered?
    When equipment breaks down, the losses typically extend far beyond the cost of repairs. A store's policy should offer coverage of reimbursement for:

    -- Physical damage, including the cost repair of replace damaged equipment.
    -- Spoilage that results from refrigeration or other breakdowns.
    -- Business income loss caused by an extended equipment outage and prolonged interruption.
    -- Extra expenses that are necessary to sustain normal operations, such as rental equipment needed to keep the store open during repairs.
    -- Service interruption, which extends income coverage to pay for interruptions due to loss of electricity, water, gas and other services caused by equipment breakdown.

    Not all insurers are equal when it comes to knowledge, claim processing, professional networks of repair businesses and other critical factors. That's why it's important to find an insurer who understands your business and has the resources needed to get you back in action.

    Among other things, convenience store owners and managers should look for insurers with deep familiarity with their equipment. This will enable them to speed repairs as well as provide important preventative and maintenance information. The insurer should be knowledgeable about modern technology. Conventional boiler and machinery policies may not be sufficiently broad.

    Further, look for an insurer with claim service backed by access to an extensive network of repair firms and parts suppliers. Losses can mount quickly and customers will find other businesses to meet their needs. It's critical that your insurer not only reimburse you for your losses but play an active role in restoring systems and equipment.

    An Ounce of Prevention
    Your insurer should also play a role in helping you avoid problems. Some insurers offer a range of loss-prevention services such as electrical systems surveys to identify trouble spots, such as overloaded and under-maintained areas, and infrared thermography to detect electrical hot spots. If problems are detected, the insurer can recommend fixes as well as suggest a proper maintenance program.

    Your insurer should have the knowledge, experience and resources to work with you to develop pre-emergency planning and an action plan for recovery if a breakdown does occur.

    Protect Your Business and Profits with Equipment Breakdown Insurance

    With your equipment at the heart of your business, having the right insurance in place is crucial to protecting your operations and income stream. Would you have the insurance coverage you need when critical equipment breaks down? Now is the time to make sure you do. With such a heavy reliance on equipment, no convenience store can afford to have anything less than a broad equipment breakdown policy that can help you get back in business as quickly as possible.


    Jeffrey P. Watt is senior vice president for treaty division with The Hartford Steam Boiler (HSB) Inspection and Insurance Co., responsible for leading equipment breakdown and strategic products reinsurance relationships with 150 of HSB's client insurance companies. He has served in many positions with HSB, including leading the Treaty Division Underwriting and Information Technology.

    By Jeffrey Watt, The Hartford Steam Boiler Inspection and Insurance Co.
    • About Jeffrey Watt

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